Much sound and fury over free trade has been generated during this extraordinary election year. As with all agreements, the North American Free Trade Agreement has become a political football. The general public has been misled by the politicians who have vilified it.
I will attempt to set the record straight and point out the benefits we have gained by building an integrated North American economy and its integrated and unified production chains, which increase our competitiveness in the World.
{mosads}Make no mistake, today the North American Free Trade Area is the largest and most competitive trading bloc in the world. We have built it over 20 years of hard work using all the mutually supportive assets and talents of North America. Do not be fooled by those who denigrate this unique achievement. The entire world is envious of what we have achieved in North America.
Not so. Consider the following:
- In the 22 years since the entry into force of NAFTA, Mexico has become the U.S.’ second largest market and second only to Canada as our leading trading partner.
- During NAFTA’s first five years U.S. goods exports to our NAFTA partners increased by 66% ($93 billion to $235 billion).
- U.S. exports to our NAFTA partners grew significantly faster than our exports to the rest of the world. Our export growth to Mexico and Canada alone accounted for over 40% of our export growth to the entire world.
- The vast bulk of our NAFTA trade is in manufactured goods, over 86%. Trade in this sector grew by over 66% between 1993 and 1998. Now, North America is also the largest energy producer in the world.
- U.S. agricultural exports to NAFTA partners totaled $13.2 billion in 1998, or a fourth of all American agricultural exports to the world. Agricultural trade has increased exponentially since NAFTA.
- American goods exports to our NAFTA partners supported an estimated 2.6 million American jobs in 1998, an increase of 31% since 1993, before the NAFTA came into force. NAFTA created 600,000 new manufacturing jobs for Americans during its first five years.
NAFTA’s value is most apparent in difficult economic times. Even with the severe downturn in the Mexican economy in 1995, NAFTA prevented Mexico from closing its market to American exports and a consequent loss of American jobs. It is estimated that over 6 million U.S. jobs now depend on trade with Mexico.
In Mexico’s earlier 1981-1982 financial crisis, Mexican officials imposed 100% duties on American products and strict licensing requirements. These moves caused American exports to plunge 50% and cost 230,000 American jobs, a drop of more than half the jobs related to exporting to Mexico at that time. It took seven years for American exports to Mexico to recover!
In 1995, with the NAFTA in force, the situation was very different, thanks to NAFTA. Mexico continued to reduce its tariffs in line with its NAFTA obligations, while adding restrictions on imports from non-NAFTA countries. Consequently, the U.S. share of Mexico’s market rose from 71% in 1994 to 74% in 1995.
U.S. exports to Mexico rose 23% in 1996 and were 90% higher in 1998 than in 1993. In 1998, Mexico’s total exports reached $120 billion and its imports were $140 billion, for a total of $260 billion in trade for the year. Total trade between the U.S. and Mexico reached $184 billion in 1998. Mexico exported $86 billion to the U.S. and imported $98 billion in American goods in 1998. Since NAFTA came into force our bilateral trade has more than quadrupled to over $400 billion USD in 2010.
This makes Mexico the second largest trading partner of the U.S. and the second largest export market of the U.S., after Canada. This is roughly the equivalent of trade with Britain and Germany together! This relationship with the U.S. has also spurred other export trade, making Mexico the greatest trading nation in Latin America.
As the second largest destination for U.S. exports and third largest source of imports, 6 million U.S. jobs depend on trade with Mexico. That means one in every 24 workers in the U.S. depends on U.S.-Mexico trade for their employment. Beyond the $400 billion in bilateral merchandise trade each year is another $40 billion in services trade and an accumulated total of more than $120 billion in foreign direct investment.
Cross-border trade often occurs in the context of production sharing. Manufacturers in all three North American nations, work together to create goods. Regional supply chains criss-cross the U.S.-Mexican border many times. Many imports and exports are temporary as an item is being produced.
Automobiles built in North America cross the U.S. borders eight times during production, integrating materials and parts developed in Mexico and Canada. Electronics, appliances, and a variety of machinery products do the same. Taken together, goods from Mexico and Canada represent fully 75% of all the domestic content that returns to the U.S. as imports. Because only Mexico and Canada have integrated North American production processes with the U.S.
One wonders how anyone could even suggest building a wall to block or disrupt over one billion dollars a day in vital legitimate trade across our southern border? Only someone who has no understanding of our mutually dependent and beneficial free trade agreement could suggest such a course of action.
Our North American auto industry, the strongest in the world, is wholly integrated through NAFTA. That fact alone should give pause to any politician. Could any reasonable person suggest pushing GM, Ford and Chrysler into the trash heap and throwing millions of auto-workers and auto-parts workers out of their jobs. It seems insane to blame NAFTA for being the most successful of trade agreements.
Trade between our three countries is not a zero-sum game. It is a win-win-win, a case of joint mutual interest. If the Mexican economy prospers, it enhances U.S. competitiveness and vice versa. It is difficult to conceive of a strategy for increasing U.S. economic competitiveness and supporting job creation that does not significantly take into account our two North American neighbors, Mexico and Canada.
Unlike two decades ago when the agreement to launch a free trade area in North America generated enormous controversy, the U.S. economy is now inextricably linked to that of its neighbors and all future efforts to change or improve the economy will have to take this mutual interdependence into account.
This does not mean that economic integration across the borders is uncomplicated and that there are no disputes and dislocations within particular industrial sectors that will need to be addressed. What it does mean is that the self interests of Mexico, the U.S. and Canada are common North American interests and that we must work as partners to strengthen our mutually dependent economies.
Today, the overwhelming bulk of Mexico’s imports come from the United States. NAFTA has lead to tremendous growth in exports and jobs at home. The opportunities created by NAFTA for American business in Mexico are almost limitless.
NAFTA has shown the world that the ties that bind our countries together are mutually beneficial and are stronger than ever.
Dr. Crook-Castan is a retired U.S. Diplomat who served as Alternate Permanent Representative to the Organization of American States. He served as U.S. Consul in Monterrey, Mexico and NAFTA Negotiator for Transportation, Telecoms, Foreign Investment and Privatization, in Mexico City. He has instructed at the Foreign Service Institute and the Inter-American Defense College, as well as the Universidad de Monterrey and the University of the Americas in Mexico City.
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